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CIRCULAR No

CIRCULAR No.3/1997/TTLT/NNHN-BTC

THE MINISTRY OF SCIENCE, TECHNOLOGY AND ENVIRONMENT

CIRCULAR No. 1940/1997/TT-BKHCN&MT OF NOVEMBER 15, 1997 GUIDING THE TECHNOLOGICAL EVALUATION OF INVESTMENT PROJECTS UNDER CONSIDERATION FOR INVESTMENT LICENSES

- Pursuant to Decree No. 22-CP of May 22, 1993 of the Government on the tasks, powers and organizational structure of the Ministry of Science, Technology and Environment;

- Pursuant to Decree No. 12-CP of February 18, 1997 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam;

- Pursuant to Decree No. 29-CP of May 12, 1995 of the Government detailing the implementation of the Law on Promotion of Domestic Investment;

- Pursuant to Decree No. 42-CP of July 16, 1996 and Decree No. 92-CP of August 23, 1997 of the Government on the issue, amendment and supplement to the Regulation on the Management of Investment and Construction,

The Ministry of Science, Technology and Environment issues this Circular to guide the technological evaluation of investment projects.

I.- GENERAL PROVISIONS

I.1.- "Technological evaluation of investment projects" (technological evaluation for short) referred to in this Circular is construed as the process of examining and evaluating the compatibility of the technology(ies) specified in the investment project with its contents and objectives on the basis of the State policies at the time of the evaluation so as to make recommendations on the licensing of the investment project.

I.2.- Subject to technological evaluation are:

a/ The investment projects defined in Points 1, 7, 12 and 26 of Decree No. 12-CP of February 18, 1997 detailing the implementation of the Law on Foreign Investment in Vietnam;

b/ The investment projects defined in Decree No. 42-CP of July 16, 1996 which are supplemented and adjusted in accordance with Decree No. 92-CP of August 23, 1997;

c/ The investment projects in the forms defined in Article 1, Items 1, 4 and 5 of Decree No. 29-CP of May 12, 1995 detailing the implementation of the Law on Promotion of Domestic Investment;

d/ The investment projects for the expansion of their production, renewal of technology(ies), etc.

1.3.- The contents of technological evaluation include:

- Products of the technology and their market;

- Technology selection;

- The equipment in the technological chain;

- Raw materials, fuel, materials, components and spare parts in service of production activities;

- Production organization and management. Labor and training;

- Labor safety and hygiene. Explosion and fire prevention and fight;

- Technological efficiency;

- Technology transfer;

- Assessment of the technological impact on the environment.

II.- DETAILS OF TECHNOLOGICAL EVALUATION

II.1.- Products of the technology and their market.

The following contents of a project dossier should be evaluated:

a/ Forecasts on market demand (domestic and abroad), taking into account the products of the same kind, that have been or are to be marketed, the reliability of the forecasts;

b/ Forecasts on market shares of the products of the technologies, the export percentages and marketing measures;

c/ Product quality standards;

d/ The competitiveness in terms of quality, design and price of products created by the technologies. Generally speaking, these criteria must be higher than (or at least equal to) those of the products that have been or are to be marketed (according to forecasts)

II.2.- Technology selection.

a/ Examining the bases for the selection of the technology.

b/ Examining the perfection of the technology. The technology diagrams may vary depending on the type of products and the mode of production, but they must demonstrate all the processes of the production chain in order to create the expected products (both quantity and quality).

c/ Encouraging the selection of modern technologies as compared to the international and regional levels. In a number of cases, technologies suitable to the development level and conditions of Vietnam may be used provided that such technologies must show their superiority over the existing technologies in the country.

d/ A technology shall be evaluated on the basis of the following :

- Origin of the technology;

- Date of creation of the technology;

- Technological efficiency: percentage of waste and consumption of materials and raw materials, energy, investment ratio, etc.;

- The level of automation, mechanization and specialization, working conditions, job creation;

- Specifications of the input materials and raw materials;

- The product quality standards;

- Degree of environmental pollution, labor safety and explosion and fire prevention and fight;

- Investment efficiency, time for ital recovery, etc., with regard to investment projects.

II.3.- Equipment in the technological chain.

a/ Assessment of the equipment compatibility:

- The equipment in the technological chain shall be considered on the basis of the compatibility of its functions and quality with the technology requirements in order to create products as expected in terms of both quality and quantity;

- In the course of its operation, the equipment must meet the environmental protection and labor safety requirements as prescribed by law;

- The list of equipment must reflect the ability of performing the processes in the technological diagram, thus meeting the required quantities and quality of semi-finished and finished products.

It is necessary to avoid the lack of equipment needed for the production chain or the inclusion of unnecessary equipment into the list, affecting the technological comprehensiveness (which may happen in cases where one party makes ital contribution with equipment)

b/ Evaluation of the equipment quality:

On the basis of the list of equipment to be used in an investment project, it is necessary to examine:

- The origin of the equipment (the country where the equipment is manufactured);

- The manufacture year, sign and code of the equipment;

- The specifications and technical properties (equipment acity, the number of revolutions and the quantity of products made per time unit, etc.).

- The equipment's consumption of raw materials, fuel and energy per product unit;

- The equipment's requirements regarding raw materials and fuel;

- The quality standards of the products made by the equipment;

- Evaluation of the equipment's and production chain's degree of automation, mechanization, level of the utilization of human resources, and conditions for ensuring labor safety and environmental hygiene.

c/ Evaluation of used equipment:

Apart from the general specifications mentioned in Item B above, the used equipment should be further examined in terms of :

- The quality norms and the existing technical specifications of the used equipment as compared to the brand new equipment of the same type, the time of examination of these norms;

- The number of hours of operation achieved by the equipment and the working conditions of the equipment;

- The number of times the equipment has been repaired or overhauled. The components which have been replaced with new ones and which still ensure the quality of new ones;

- The conditions warranty for used equipment;

- The price of used equipment compared to that of new equipment;

- Examination of the ratio between the total value of the used equipment and the total equipment value of the project.

d/ Mode of equipment procurement:

Equipment shall be procured through bidding or contributed by the foreign party as project ital contribution. In case the foreign party contributes to the project ital with the value of equipment, it is necessary to carefully examine the equipment quality, price and compatibility with the project requirements.

II.4. Materials, raw materials, fuel, components and spare parts for production.

a/ Examining the category, volume and value of materials, raw materials, fuel, components, spare parts or semi-finished products imported for processing, manufacturing and assembling the products.

b/ Encouraging the use of materials that are available or procurable in Vietnam. Encouraging cooperation with domestic enterprises in the production and supply of semi-finished products, components and spare parts for the production and assembly of products. Encouraging the use of materials that cause little environmental pollution.

c/ Determining the ratio between the values of the imported and locally made semi-finished products, components and spare parts , comparing them with the production costs and making comments on this ratio on the basis of the localization policy of the State in each specific field.

II.5.- Organization and management of labor. Labor and training

The following should be evaluated:

a/ The rationality in the organization of production: The chart of production organization and management must cleanly indicate the functions and tasks of each section so as to ensure the effective operation of each production unit appropriate to the selected technology.

b/ The rationality in the use of labor: Laborers in enterprises must be recruited and selected from the domestic workforce, except for the special positions where foreigners may be employed. Encouraging the projects to create many jobs for laborers.

c/ Exaimining the training of the enterprise's laborers according to the tasks and requirements of the technical positions in terms of professional skills and working procedures.

II.6.- Labor safety and hygiene. Explosion and fire prevention and fight.

The following should be evaluated:

a/ The supply of labor protection, safety and hygiene equipment and tools suited to the requirements of each working position in the technological chain. The working environment and conditions must meet the requirements as prescribed by law.

b/ The supply of explosion and fire prevention and fight equipment and tools (if necessary) and the emergency devices according to current regulations.

II.7.- Technological efficiency:

Technological efficiency shall be evaluated according to the following aspects:

- The compatibility of the technology with the project's objectives and the socio-economic development needs;

- The socio-economic benefits brought about by the technology: The possibilities of generating new production acity, new business lines and products, expanding markets, creating jobs and incomes for laborers as well as remittances to the State budget, raising the people's intellectual standards, protecting the environment, etc.

For investment projects in business and production, in addition to the above-mentioned contents, the technological efficiency must also be shown in the efficiency of these investment projects and assessed against the following criteria:

- The net project value (NPV);

- The internal return ratio (IRR);

- The time for retrieval of invested ital.

II.8.- Technology transfer.

If an investment project covers one or more of the following contents, the project owner shall be requested to make a technology transfer contract as prescribed by law (a separate guidance shall be provided):

a/ Transfer of industrial property objects (inventions, utility solutions, industrial designs, trademarks).

b/ Transfer of technical secrets and know-hows related to the technology(ies) in the forms of technological options, technical solutions, technological processes, preliminary designs and technical designs, formulas, technical parameters, drawings, technological diagrams, computer softwares which are technical know-hows with or without accompanied machinery and equipment.

c/ Transfer of solutions for production rationalization, technological innovation and renewal.

d/ Provision of services in support of technology transfer:

- Technical support for the selection of technologies, guidance on equipment installation and test operation of equipment chains;

- Providing consultancy on technology management, business management, guidance on the implementation of the transferred technological processes;

- Management of production units together with technical training and support;

- Training of workers, technicians and managerial cadres to improve their technical, professional and managerial skills;

- Provision of information on technology, production and business.

c/ Supply of machinery, technical equipment and facilities together with one or more of the above-mentioned contents.

II.9.- Assessment of the technological impact on the environment.

For investment projects, the environment is also a "product" of the operating process of the selected technology and, therefore, environmental evaluation is part of the technological evaluation. The environmental evaluation of investment projects shall comply with Circular No. 1100-TT-MTg of August 20, 1997 of the Ministry of Science, Technology and Environment guiding the elaboration and evaluation of reports on the assessment of the investment projects' environmental impact (Part II.1, The stage of applying for investment licenses).

III.- ORGANIZATION OF IMPLEMENTATION

III.1.- The Ministry of Science, Technology and Environment shall organize the technological and environmental evaluation of investment projects of Groups A and B (except for Group B projects already assigned to lower levels). The Office of Technological and Environmental Evaluation of Investment Projects shall act as coordinator in organizing such evaluation.

III.2.- The agencies in charge of science, technology and environment under the ministries, branches, and the science, technology and environment departments of the provinces and cities directly under the Central Government shall organize the technological evaluation of investment projects of Groups B and C according to the assignment defined in Article 7, Decree No. 42-CP of July 16, 1996 (which has been amended and supplemented by Decree No. 92-CP of August 23, 1997) and Decision No. 386-TTg of June 7, 1997 of the Prime Minister assigning the powers in licensing of foreign direct investment.

III.3.- The Corporations established by Decision No. 91-TTg of March 7, 1994 of the Prime Minister shall organize the technological evaluation of investment projects of Groups B and C which are funded with commercial loans and investment ital of State enterprises.

III.4.- The Corporations established by Decision No. 90-TTg of March 7, 1994 of the Prime Minister shall organize the technological evaluation of Group C investment projects which are funded with commercial loans and investment ital of State enterprises.

III.5.- The Management Boards of the industrial zones, export processing zones and high-tech zones, which are assigned the task of granting investment licenses shall organize the technological evaluation of investment projects according to the government decisions on the assignment of investment licensing.

III.6.- If a project dossier includes contents under the competence of the ministries or specialized branches, the evaluation organizing body shall have to consult these ministries or branches.

The ministries or branches which are consulted on the project, including amendment or supplement, shall have to reply in writing within 7 days from the date of receipt of the written request; past this time limit, if the ministries or branches have no written reply, the project shall be deemed approved.

If an investment project has contents related to the technology transfer as stated in Section II.8 of this Circular, such contents shall comply with the legislation on technology transfer.

III.7.- In the course of preparing evaluation remarks, depending on the degree of technological sophistication, the following evaluation methods may be employed:

- Consulting experts;

- Organizing inter-disciplinary or inter-agency meetings (to which outside experts in the relevant specialized fields may be invited) to clarify the technology-related contents of the investment projects.

In case of necessity, the project owner may be requested to clarify, supplement or adjust the project dossier. He/she is obliged to satisfy the evaluator's requests regarding the clarification of, addition or modification to the project dossier.

III.8.- The experts' forms of technological and environmental evaluation of investment projects shall be made according to the prescribed form. The institution assigned the task of organizing the technological and environmental evaluation of investment projects shall summarize these forms and drawing a conclusion on the technological and environmental evaluation of the investment projects and submit it to the competent level for approval.

Since the contents and characteristics of investment projects are very diversified the technological and environmental evaluation forms sjall contain the most universal points of investment projects. These points may be adjusted to suit each particular project.

III. 9.- Evaluation fees shall comply with the regulations of the Ministry of Finance.

IV.- IMPLEMENTATION PROVISIONS

IV.1.- The organizations performing State management in the field of science, technology and environment and responsible for technological evaluation of investment projects and the economic and business management organizations defined in Part III of this Circular shall organize the technological evaluation of investment projects at the request of the agency assuming the prime responsibility for evaluating investment projects so as to ensure the evaluation contents and time limit before investment licenses can be granted to the projects.

In the course of evaluation any arising problem should be referred to the Ministry of Science, Technology and Environment for uniform solution.

IV. 2.- This Circular takes effect 15 days after its signing for issuance.

For the Minister of Science,

Technology and Environment

Vice Minister

CHU HAO